Scope remains for Further Rate Cuts
In the minutes of its meeting on monetary policy in May, the Reserve Bank of Australia (RBA) board noted that there has been a recent strengthening of conditions in the housing sector.
However, the RBA again cut the cash rate to a record low of 2.75%, noting in the minutes that credit growth continued to remain subdued, and that the new reduction was necessary to stimulate sustainable growth in the economy, provided that it does not exceed the RBA’s inflation target.
The minutes recorded an improvement in the number of dwellings sold and increasing dwelling prices, as well as a lift in the purchase of new dwellings.
In outlining its decision to reduce the May cash rate, the RBA noted that the household sector was responding to the already-low interest rates. However, the general economic growth of the sector is expected to be subdued for a while longer, and the outlook of inflation was reduced slightly.
The RBA board report noted that while the housing sector was showing evidence of responding to reduced interest rates, with consumer sentiment measuring above average, the business sector remained subdued.
This has been attributed - in part - to the high exchange rate, despite lower interest rates and export prices.